Startups should try and avoid venture capital investment if they can, Matt Barrie told the crowd at SydStart.
If possible, they should bootstrap, Barrie argued, using alternate sources of funding like grants, debt factoring, or even borrowing
The Freelancer CEO is worried that investors can take advantage of founders because of an “information asymmetry” when it comes to documentation and contracts. As a result, founders can lose control of their businesses.
Barrie’s example was Box.com, whose founder Aaron Levie owned just 3.4% of the company by the time it went to an IPO.
In a discussion with Business Insider, Bill Bartee, co-founder and managing director of venture capital firm Blackbird Ventures, agreed and disagreed with Barrie.
“Matt is right, and we agree in the sense, that the very best financing that a company can get is its customers’ money” says Bartee
“Not every company should take venture money. There are some companies that don’t need it. There are some companies that it doesn’t work for. And that’s just fine.”
But Bartee also offers a vigorous defence of the Australian venture capital industry, arguing they provide services beyond dispensing money.
His own fund, for example, has raised money from a range of experienced entrepreneurs and has a broad portfolio of companies he offers to tap for cross-pollinating ideas, hiring, or even advice and mentoring.
“Once we make an investment in a company we have an equity position and we are their hired guns. And we will do anything they want us to do,” Bartee explains.
“We will try and help them recruit key people, we will try and help them with their next round of financing, we will try and hook them up with people and mentors who can help them through various stages of their lives.”
Another concern Barrie raised was board control. Venture capitalists are often entitled to board seats, or even several, due to their equity.
Once founders lose control of the board, they’ve lost the company Barrie says. And a VC controlling the board can force companies to a quick exit, such as an early IPO.
“You know, we take a board seat maybe 70% of the time, we don’t buy a majority of the company. We like to buy a low double digit percentage. So, for us it is about owning a minority position,” explains Bartee.
“Running a company takes a huge amount of time and its not something we are very interested in”
In the end, it comes down to circumstance. Everyone agrees that bootstrapping and relying on revenue to grow is the ideal situation, but not every company can generate revenue from the start, and not every founder has the means to borrow.
And if there is anything you learn from two days at SydStart, it’s that there is no end of evangelists for mentorship. From the first timers to serial entrepreneurs, everyone touts the value of someone who has been there before.